Growing Headwinds
There is no upside for corporate Korea is the untarnished conclusion of Aletheia Capital Asianomics Country Report, Korea – Growing Headwinds, 4 February.The Bank of Korea is forecasting 2.6% growth in 2019. This may well be achieved. Government spending is set to rise sharply. Tax breaks and rising minimum wages should buoy consumption and an improvement in the global dollar purchasing power in 2H help stabilise exports.
But make no mistake the underlying growth story is deteriorating. The Moon government’s ‘income-led’ growth strategy has deeply negative implications for corporate Korea and for the economy medium-term. Rising minimum wages, higher tax rates and an increasingly business unfriendly environment will squeeze corporate profits for the next few years and threaten to chase Korea’s largest and most profitable companies out of the country. Not good news for domestic jobs, investment or for growth.
We are underweight Korean equities in our relative regional portfolio for the second year running. If investors do want exposure we advise focussing on Korean companies that are globally diversified.
All the best for now.
Kung Hei Fat Choi!
Sharmila
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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